Share |

Recession in America: how family businesses are fighting back

Three leading American family businesses have been making the headlines for different reasons, although all were recession related. Katie Barker analyses how Marriott, Ford and Huntsman have survived to fight another day 

Everyone has suffered in this crisis; it is deep, effecting and inescapable. It sorts those who can survive from those who cannot and sees companies react in very different, sometimes unpredictable ways. Many family businesses have found ways to adapt and cope, whether it is by cutting back, going green or looking to outside management.

Marriott, Ford and Huntsman are leaders in the hotel, car manufacturing and chemical industries respectively. Each is an American family-controlled business and each has been affected by the recession in a different way. Their experiences reflect a variety of reactions to the crisis and show how all encumbering and affecting it really is. It also shows how families can adapt and survive.

Marriott International is the family-run hotel giant headed by 77-year-old CEO Bill Marriott. The company has been hit hard by the fall in travel during the downturn and an increase in the number of low-cost hotels competing for its customers. For the first quarter of 2009 Marriott recorded revenues of $2.5 billion, a 15% year-on-year decline, causing the traditionally conservative company to rethink its ideas.

Bill Marriott and his team have taken three approaches to the downturn in an attempt to keep the business growing, ensure it remains appealing and most importantly that it maintains its market position.

The first is diversification. In January Marriott announced it was launching a new chain of fashionable yet affordable boutique hotels under the name Editions. Not one to do things by halves, Bill Marriott teamed up with Ian Schrager, the visionary behind many of world's the hippest boutique hotels.

Both bring different attributes to the table; Marriot will operate the properties while Schrager is in charge of aesthetics, concept, marketing, food, drinks and branding. They have hotels planned for some of the world's most visited locations including Los Angeles, Paris, London, Miami and Madrid. With the first properties not opening until 2010, it is still too early to tell if the plan is working, but it is clear Bill Marriott is not letting the recession halt the company's growth.

The second tactic adopted by Marriot is simple – cost cutting. The difficulty is making cost-cutting measures work without losing customers. Marriott has brought in a range of money-saving initiatives, from stopping automatic delivery of newspapers to changing the cut of their bacon; the latter saves $2 million a year. However, the cutbacks are not penetrating all aspects of the business. Bill Marriott refuses to reduce employee benefits for reasons he explained to Fortune magazine: "If the employees are well taken care of, they'll take care of the customer and the customer will come back. That's basically the core value of the company."

The third approach involves looking outside the family for the company's next leader. In May non-family Arne Sorenson became Marriott's president and chief operating officer, with US media reports tipping him to become the next CEO. The Maryland-based company has only had two CEOs in its 82 years, Bill Marriott and his father J Willard Marriott. None of Bill's children are positioned to take over the business and looking to non-family management is part of the wider modernisation plans for the hotel chain.

Although the business has not managed to avoid the downturn, the family has managed to retain control of its 25% share in the company. This situation is similar to that of the Ford family, who still control 40% of Ford's voting shares. The company has not received any state aid to stave off bankruptcy, unlike its major rivals General Motors and Chrysler, so the family has been able to retain control.

Like Marriott, Ford has been dealt a serious blow by the recession seeing losses of $14.6 billion in 2008, the worst in the company's history. Despite the losses, the family's commitment to the company has not wavered. Instead family members have pulled together to provide some stability for the business.

Chairman Bill Ford, great-grandson of founder Henry Ford, told the New York Times: "The last thing this company needs at this point is for the family to be difficult, and rather than splinter we have pulled together." And the approach seems to be working as the Detroit-based carmaker managed to boost its US market share to 18% in June compared to the 14.6% it had for the same period last year.

In spite of its heavy losses, Ford has continued its commitment to producing cars that are more environmentally friendly. In March Tony Earley, former chairman and CEO of DTE Energy, was elected to the Ford board. Bill Ford remarked that his experience in the utility industry would be particularly beneficial "at a time when automakers and utilities are working together to find ways to cooperate on the electrification of automobiles." And the company's commitment to cutting carbon emissions has not gone unnoticed; in June Ford was awarded a $5.9 billion government grant to put towards building cars that are more fuel efficient. The grant is part of the 2007 energy bill by which the US government is hoping to boost average fuel economy by 2016.

Family-owned chemical company Huntsman Corp has had a completely different experience of the recession. The global downturn has actually strengthened the founding family's control of the business after a proposed takeover bid failed due to the lessening availability of credit. 

The deal, first agreed in 2007, would have seen Huntsman merged with rival Hexion Speciality Chemical Inc. However, the agreement turned sour and the resulting series of disputes and lawsuits only came to an end last month when Huntsman was awarded $1.73 billion in compensation from Credit Suisse and Deutsche Bank.

The proposed merger would have seen Apollo Management, the private equity company that controls Hexion, purchase Huntsman for $6.5 billion. However, in July 2008 the merger had still not happened and Hexion attempted to stop the deal going ahead claiming that the two companies together would be insolvent. In fact, by this time credit had become much more difficult to obtain and Credit Suisse and Deutsche Bank had backed out of funding the deal.

Huntsman refuted claims the merged company would be insolvent and the resulting battles in the courts lasted a year. During that time Huntsman agreed a $1 billion settlement with Apollo Management as well as the $1.73 billion settlement with the banks.

So, although the takeover bid was an abject failure due to the economic crisis, the outcome and resulting liquidity was a success for the family-owned firm. As founder Jon Huntsman commented after the final court ruling: "We will put these proceeds to good use as we press forward with the next successful chapter in our company and history."

Click here >>
Close